Private sector activity in London rose at its sharpest rate for exactly two years in January, driven by accelerated new business growth and improved confidence for 2026.
The headline London Business Activity Index – a seasonally adjusted index that measures the month-on-month change in the combined output of the region’s manufacturing and service sectors – reached a two-year high of 57.7 in January, up from 54.9 in December, to indicate a rapid expansion in the local economy.
Surveyed firms highlighted an increase in client confidence, new overseas work and greater business investment as key factors behind an uplift in activity. Firms also demonstrated stronger confidence towards future activity, with expectations rising to a 16-month high.
Catherine van Weenen, Territory Head of Commercial Mid Market at NatWest, said: “The economic signals provided by London firms look increasingly positive as we start 2026. January was a bumper month for private sector activity as panellists indicated that the reduction in policy uncertainty had lifted business spending. They also highlighted inflows of new work from overseas amid improving conditions in key markets such as the EU and the US.
“Although cost pressures continued to act as a dampener on hiring, a further increase in outstanding work levels at London firms – the first consecutive rise in over one-and-a-half years – could lead companies to rethink their recruitment pauses.
“Pricing power remains a question mark. Despite input costs rising sharply, London companies recorded the joint-slowest increase in selling charges in the UK, amid heightened levels of client aversion to price rises. That said, strengthening demand levels may provide companies with more wiggle room.”
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Performance in relation to UK
London-based private sector firms saw a robust rise in new business inflows over the course of January. The uplift was sharp, quicker since the end of last year, and far exceeded the UK-wide average.
Survey respondents pointed to an uplift in new work due to a rebound in client confidence, which some linked to greater spending following the government Budget. There were also comments highlighting an increase in new orders from overseas firms.
Subsequently, London companies recorded another improvement in their expectations. The degree of confidence regarding total activity over the next 12 months was the strongest since September 2024. Firms anticipated higher demand, greater investment into new products and better economic conditions.
Out of the 12 monitored UK regions and nations, London held the top spot for both sales growth and future expectations. Overall confidence across the UK was also up to the highest since September 2024.
As has been the case in 13 out of the past 14 months, local firms reduced their headcounts during January. In line with the national trend, the pace of job shedding gathered speed from the previous survey period and was sharp overall. Anecdotal reports highlighted cost saving efforts, with many firms enacting hiring freezes or narrowed recruitment strategies.
Meanwhile, the survey data indicated that business capacity came under further pressure. Outstanding business rose for the second month in a row, and the rate of accumulation was broadly unchanged. Panellists noted that rising inflows of new work was leading to larger order pipelines and completion delays. A rise in backlogs across London contrasted with a slight drop at the UK level.
January data signalled a marked increase in operating expenses faced by London companies. Although the rate of inflation slipped to a three-month low, it remained much higher than the long-run average (since 1998). Comments from survey respondents frequently suggested that higher wage costs were responsible, which firms often attributed to tax policy changes and skilled labour availability.
Wage inflation was also linked to an increase in selling charges. London firms reported a solid markup in their prices in January, although this was the second-weakest rise since April 2021 (after November 2025). Moreover, out of the 12 monitored UK areas, London’s uptick was the joint-slowest alongside Scotland. Some comments suggested that lower fuel prices, higher competition and lower appetite from clients for fee increases had softened the rate of output price inflation.
